The University of Cambridge has retained the top spot in the annual QS World University Rankings for a second year, leaving the University of Oxford trailing in fifth place.

The University's success continued this week when it was named the best university in the country by the Sunday Times' University league table.

While the USA retains its dominance in the World rankings, making up 13 of the top 20, the rankings reflect positively on the state of the British university system as a whole, with five British universities in the top 20.

Dr Wendy Piatt, Director General of The Russell Group - whose institutions make up four of the top seven - said these results indicate that “UK universities punch well above their weight on the world stage”.

The ranking system scores universities’ qualities based on factors including academic reputation, research and employability of graduates, and for the first time this year, universities’ tuition fees were also published.

Despite the apparent success of British universities, recent cuts to university teaching budgets and the rise in tuition fees could pose problems for future success in the rankings.

Although British universities on average still retain cheaper fees than most American universities, they are facing increasing competition for students from continental European universities, such as in the Netherlands and Sweden, who offer considerably cheaper tuition and also have institutions ranked highly by QS.

Furthermore, British universities suffered a drop in scores for students per faculty ratio – of the 37 British universities in the top 300 of the rankings, 34 scored worse than in 2010. Ben Sowter, QS’ Head of Research, said British universities were suffering the effects of “pre-emptive redundancies” in preparation for less government funding. He also hinted that performance would likely drop further saying “the worst effects of the funding cuts have yet to be felt by UK universities”.

While praising British success, Piatt highlighted the determination of global competitors in Asia and continental Europe to catch up. Britain invests just 1.3% of its GDP in higher education - less than the USA, Germany, South Korea, Canada and Japan. Despite this, British research is responsible for 12% of citations in scientific research. Piatt warns that “the government must continue to recognise the importance of world-class research-intensive universities to our future prosperity”.